Application of Principles
88Between 25 February 2010 and 15 March 2010, the Purchasers persisted in their contention that they were not required to pay interest under SC 55.1, to the extent that the amount of interest exceeded the rental payable by them in respect of the same period. At first, the Purchasers did not quantify the precise amount of interest said to constitute an unenforceable penalty. Nor did they say exactly what they would do if the Vendor did not agree with their interpretation. In the letters of 25 February, 3 March and 11 March 2010, the Purchasers stated their intention of paying interest, but only to the extent that the interest payable in respect of the period exceeded the rental payable in respect of the same period.
89It was not until the fax sent at 2.18 pm on 12 March 2010 that the Purchasers invoked cl 7.2 of the Contract and quantified the amount in dispute. In that letter the Purchasers required the sum of $2,200.00 to be retained by the Vendor pursuant to cl 7.2, pending finalisation of their claim. They did not expressly state that they would not complete the Contract unless the Vendor agreed to their demand, although that may have been implicit given that the Vendor was insisting on the Purchasers paying the full amount of interest on completion.
90The second email sent by the Purchasers early on 15 March 2010 repeated the claim that the Vendor was required under cl 7.2 to set aside $2,200.00 from the deposit moneys. The email added a claim that the amount to be set aside should be increased by $932.05 to take account of the additional interest charged by the Vendor by reason of the further delay in completion and the new claim by the Purchasers that the Vendor had not been ready, willing and able to complete on the afternoon of the previous Friday, 12 March 2010. Once again, the email did not state expressly that the Purchasers would not complete unless the Vendor agreed to set aside the amount in dispute in accordance with cl 7.2 of the Contract.
91I have set out earlier the primary Judge's account of the communications and events that took place on Monday, 15 March 2010. His Honour's finding, which has not been challenged, was that after a number of attempts to resolve the issue on that day, Mr Velik's final communication to Ms Marrone, the Vendor's representative, was that the Purchasers would hand over the cheques if the Vendor agreed to set aside the disputed amount. This the Vendor refused to do.
92If there were no other relevant circumstances, this finding, coupled with the undisputed holding that the Purchasers were not entitled to invoke cl 7.2 of the Contract, might suggest that they were prepared to complete the Contract only in a manner inconsistent with their obligations and in no other way. However, there are other circumstances that must be taken into account.
93First, the primary Judge made no finding that the Purchasers acted otherwise than in the good faith belief that they were entitled to rely on cl 7.2 of the Contract. The Court was not taken to any evidence suggesting that Mr Velik did not honestly, albeit mistakenly, believe that the Purchasers had a genuine claim that the obligation to pay interest was unenforceable to the extent that it constituted a penalty. Nor were we taken to evidence suggesting that Mr Velik did not honestly believe that cl 7.2 applied to the Purchasers' claim and thus required the Vendor to follow the procedure outlined in that provision.
94Secondly, the primary Judge held as a matter of law (at [126]-[135]) that the Purchasers' reliance on cl 7.2 was excluded by the plain language of SC 37.1 of the Contract. However, his Honour also found (at [133]) that the Vendor did not "deploy" SC 37.1 at the time she terminated the Contract and, indeed, did not do so until shortly before the trial.
95The primary Judge held that the failure of the Vendor to rely on SC 37.1 at the time of termination of the Contract did not prevent her doing so at the hearing. No doubt that conclusion was correct, but the failure of the Vendor to communicate to the Purchasers the fatal barrier to their invocation of cl 7.2 is a significant factor in determining whether the Purchasers evinced an intention not to be bound by the Contract. At no time prior to the Vendor's acceptance of the Purchasers' "repudiation" did the Vendor state clearly the ground on which she primarily relied at the hearing to establish that the Purchasers were not entitled to rely on cl 7.2 of the Contract.
96The third point is related. Mr Velik asked Ms Marrone at about 1.30 pm on 15 March 2010 why the Purchasers' claim was disputed. Mr Velik was clearly made aware by the previous correspondence that the Vendor considered that there was no relationship between the obligation to pay rent and the obligation under the Contract to pay interest. But he had never been told that the Vendor relied on SC 37.1 to exclude the operation of cl 7.2. Furthermore, Mr Velik told Ms Marrone that once he understood the Vendor's argument, he would be prepared to reconsider his own position. The inference is available that if the difficulty had been drawn to Mr Velik's attention, he would have reconsidered whether he was entitled to invoke cl 7.2, particularly given the likely consequences of the Purchasers refusing to complete the Contract.
97Fourthly, the Purchasers were correct in their assertion that the notice to complete given on 1 March 2010 was invalid and that the Vendor was incorrect in insisting that the notice had been validly served in accordance with the Contract. The absence of any explanation by the Purchasers in the correspondence of the basis for their assertion does not alter the fact that completion on or before 15 March 2010 had not been made an essential term of the Contract. There was still time for the Purchasers to reconsider their position and to tender the full amount due, had the Vendor communicated the legal basis of her contention that cl 7.2 was not available to the Purchasers.
98Fifthly, the Purchasers' position that the obligation to pay interest was, in part, an unenforceable penalty may not have been well-founded, but it was not wholly implausible. The general principle of equity was that a vendor was not entitled to both interest on the purchase price and the rent and profits derived from the land between the completion date under the contract and actual completion. However, the equitable principle gave way to a contractual provision having the contrary effect: Terry v Merriview Pty Ltd [1983] 2 VR 548, at 549-550, per Starke J (with whom Marks J agreed); at 551, per Crockett J. In Killarney Investments Pty Ltd v Macedonian Community of Western Australia Inc [2007] WASCA 180, EM Heenan AJA thought (at [88]), without finally deciding the point, that a vendor's contractual entitlement to interest on the purchase price might amount to an unenforceable penalty, if disproportionate to the loss actually sustained by the vendor. There is also authority suggesting that it is at least arguable that a party whose honest error is not in the interpretation of a contractual provision, but in the application of an equitable principle to the contract (such as a claim to a set-off), may rely on the error to show that he or she has not evinced an intention no longer to be bound by the contract: Cab Co Pty Ltd v Kotzman, at [50]-[51].
99As the authorities make clear, all the circumstances of a case must be considered and, of course, each case will depend upon its own circumstances. The facts of DTR Nominees v Mona Homes, for example, were different from those of the present case, since the vendor's construction of the contract had never been disputed at the time the vendor acted in a manner said to constitute a repudiation of the contract. In the present case, by contrast, the Purchasers were aware from the time they first asserted their claim that the Vendor disputed their entitlement to withhold a portion of the interest payable under SC 55.1.
100Nonetheless, the factors that I have identified lead to the conclusion that the Purchasers, despite their obstinacy, had not evinced an intention by 15 March 2010 no longer to be bound by the Contract or to insist on performing the Contract only in accordance with their erroneous interpretation, regardless of the true construction of the Contract or of the correct position at law and in equity.
101The Purchasers' claim that the Vendor was not entitled to $932.05 in interest in respect of the period 13-15 March 2010, perhaps falls into a somewhat different category. This claim was based on Mr Velik's assertion early on 15 March 2010 that the Vendor had not taken sufficient steps to facilitate completion on the previous Friday. The assertion was robustly rebutted in the Vendor's email sent at 9.34 am on the Monday morning. Nonetheless, Mr Velik maintained his claim at the meeting with Ms Marrone that the sum of $932.05 should be subject to the regime set out in cl 7.2 of the Contract.
102The Purchasers' claim that the Vendor was not ready, willing and able to settle on 12 March 2010 was implausible, once the Vendor provided a clear explanation of why completion could not have been rescheduled for later on the Friday afternoon. However, the amount involved in the Purchasers' additional claim was very small, taking account of the fact that over half of the claim ($471.43 of the claimed sum of $932.05) was covered by the Purchasers' contention that part of the interest due under SC 55.1 constituted an unenforceable penalty.
103I did not understand the Vendor to submit that the Purchasers had evinced an intention not to be bound by the Contract solely by reason of their misplaced claim that the Vendor had not been in a position to complete the Contract on Friday 12 March 2010. Having regard to the fact that this issue arose only on the morning of 15 March 2010 and to the other matters to which I have referred, (including the absence of a valid notice to complete), I do not think that the Purchasers' claim to withhold an additional $471.43 over and above the amount said to be an unenforceable penalty justifies a finding that they did not intend to be bound by the terms of the Contract.
104For these reasons, the primary Judge was in error in concluding that the Purchasers had repudiated the Contract on 15 March 2010 and that the Vendor was entitled to accept their repudiation and to terminate the Contract.